MPs call for tax crackdown on multinationals

St Paul's Cathedral is pictured behind signage for a Starbucks coffee shop in London October 8, 2012. Picture taken October 8, 2012. REUTERS/Luke Macgregor

LONDON (Reuters) - A committee of MPs has called on government to crack down on multinational companies that make substantial sales in Britain but pay little tax here, echoing demands from leaders across Europe for measures to tackle corporate tax avoidance.

The Public Accounts Committee (PAC) said on Monday the government should set down rules limiting inter-company transactions that reduce companies’ tax bills, push for more transparency in company reporting on tax and work with other countries to limit profit-shifting across borders.

“Global companies with huge operations in the UK generating significant amounts of income are getting away with paying little or no corporation tax here. This is outrageous and an insult to British businesses and individuals who pay their fair share,” said Margaret Hodge, who chairs the PAC.

The committee, which is charged with monitoring government financial affairs, also criticised the UK taxman, Her Majesty’s Revenue & Customs’ (HMRC), for being “too passive” with big companies.

“Lenient treatment is given to big corporations, of which almost half have a head office overseas,” the PAC said in its report on HMRC’s annual accounts.

Last month the PAC grilled executives from Starbucks, Google and Amazon over why they paid little tax in the UK while taking in billions of pounds in revenues.

The committee said it found the evidence it received was “unconvincing, and in some cases evasive”.

Starbucks said it had always complied with UK tax law but revealed on Sunday that, in response to the public outcry around its tax arrangements, it was looking at changing these.

Amazon said it complied with the tax rules, but declined to comment on the committee’s findings. Google declined to comment.

The recent UK focus on tax avoidance follows a Reuters investigation into Starbucks that showed it paid no UK corporation tax in the past three years and had told investors it was profitable while reporting big losses to the UK taxman.

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With governments across Europe running big budget deficits due to the financial crisis and global economic slowdown, tax avoidance has moved to the top of the political agenda.

Tax campaigners and groups opposed to austerity measures have pushed the UK government to lean more heavily on big businesses to close the budget gap.

However, even some big UK businesses are taking exception to the way some of their rivals paying much lower tax rates.

In recent weeks, senior executives from department store and grocery chain John Lewis and from WM Morrison Supermarkets have called for a level playing field on tax between domestic businesses and multinational rivals such as Amazon.

Amazon pays little income tax in the UK because it channels UK sales through Luxembourg, which offers some of the lowest effective tax rates in Europe.

The committee acknowledged such concerns.

“We are concerned that multinationals have an unfair competitive advantage over British businesses which have no choice but to pay their corporation tax,” the PAC report said.

The French government said last month that it was discussing new measures to tax internet companies such as Amazon and Google, which minimises its tax bill by booking sales through an Irish subsidiary.

Chancellor George Osborne announced last month that he had teamed up with his German counterpart to lead a push in the Group of 20 economic powers to make multinational companies pay their “fair share” of taxes.

However, in a separate report released on Monday, charity War on Want said Osborne’s plans to enact a new anti-tax avoidance law next year would have no impact in reducing the kinds of tax reduction techniques employed by Amazon, Google and Starbucks.

Unions and tax campaigners have already criticised the planned General Anti-Abuse Rule for being too narrowly targeted.